Top 10 Reasons Forex Traders Lose
Why Do Forex Traders Lose?
Common questions we're asked is why do Forex Traders lose when they first start off trading or when they've tried it for some time. Well, it comes down to 10 main reasons. Traders will fall into either one or more of these categories on why they lose then go off on their way and say trading isn't for them, it's too hard it's a scam. The harsh reality is they never started off their trading with the correct foundations.
Top 10 Reasons Why Traders Lose
Below I've listed the core reasons and I'll cover each reason in a little bit more detail so you can prevent yourself from making the same mistakes.
1.Poor Risk Management
2. Not accepting responsibility for mistakes
3. Over trading
4. Risking too much
5. No trading strategy
6. Unrealistic expectations
7. Indecisive trading
8. Never wrong
9. Not Enough Money to Trade with
10. Focusing only on technical analysis
Poor Risk Management
Most traders get into trading without understanding a thing. This includes risk management principles. When it comes to taking on risk they may think it's completely fine and logical to be placing trades by risking everything. In reality this is gambling and it's why trading has this persona of being too risky.
The professional traders are ones who understand risk, they don't gamble their money away and they only risk what they set out and no more (unless they're scaling in). Even simple tools like setting appropriate stop losses and profit targets the noob trader lacks. So before you start trading make sure to learn about real risk management.
Time and time again people and not just traders fail to take responsibility when things go wrong. What happens? The blame gets put on someone or something else. When traders get into the markets and they lose trades they try to find one single reason why it happened. BUT, it will never be themselves. So, what could it be? Did the brokers do make me lose? Did the market makers hunt my stop loss? News just made my trade fail.
All these phrases are put to blame when trading but the reality is you need to get into a habit as a trader to take sole responsibility of losses and trades. Once you do this you can actually improve as a trader but until then it will be impossible to progress.
Over trading is one of the most common mistakes traders will make and a costly one for sure. It generally happens the most after a trader has just exited a trade whether it be a losing one or a winning one. The trader will either be emotionally happy or upset causing them to try get back into the markets.
One key fact you need to consider when trading are the costs involved. Spreads and commissions are the main ones for most traders that fall in this category. The main reason being if you keep entering and exiting tradings then you need to pay a fixed commission and spread per trade. This is what causes losing traders.
Risking Too Much
Traders come into trading thinking it's somewhere to earn big where they think they need to "risk big". That's where traders make a massive mistake, they risk too much per trade which causes them to actually end up blowing up their own trading account. Even traders online will say they risk 100% which is crazy.
What you need to do when starting out is setting proper risk management principles based on your trading capital. If you start with less capital then you start leverage more which messes you up.
No Trading Strategy
Beginner traders coming into the markets won't really understand the concept of a strategy. Well, everyone needs a strategy when they come into trading. It should basically tell you why you should be trading and if you don't have one then you shouldn't really be trading at all. Having a strategy allows you to stay consistent in a set of rules and principles to come up with trading ideas.
We give all our traders a systematic strategy to follow using fundamentals (economic data). Your success will basically be measured on how consistent you can execute a strategy. One big mistake is that traders come into the market thinking they can follow a technical strategy which is following lines and indicators but that's completely wrong. If you're not considering economics the strategy is useless.
Many people come into trading thinking it's a get rich quick thing a quick profit from the markets. One of the core reasons traders lose is because of this exact reason of setting themselves unrealistic expectations. As a trader you never get to decide how much you can make from trading, the market will decide that for you.
Something I absolutely hate is when so called traders decide how much they can make. "Make £5000 a month trading", "Quit your job" and "Work from anywhere" are all very big red flags that what they're trying to reel you in with are false dreams and hopes which are setting you unrealistic expectations.
The best traders in the world make upwards of 50% on a good year just take a look at the performance of hedge funds and investment banks. If you set yourself ridiculous expectations then it will force you to risk too much, trade too much or make even more mistakes just so you can reach the goals but in reality you'll get further and further away of what you want to achieve.
What do I mean by indecisive trading. Well this is simply a trait where traders literally freeze in fear before placing a trade so they wait and wait and wait until they think it's the right time to get in staring at price movements. Another case of indecisive trading is buying something and selling it straight away due to price action.
The harsh reality is if you had a thorough strategy and proper risk you wouldn't have this fear driving your emotions or trading activity. Having a strategy that isn't just pretty patterns and indicators will give you that confidence in your trading over the long run.
One of the factors which has surprised me is peoples financial situation. If you're not working you shouldn't trade, very simple. The reason being a psychological loss of money when you have no income is much stronger and therefore causing you to make too many mistakes. Trading is not an income it's to build existing income.
Never being wrong
When you become a trader the first thing I guarantee you want to be is thinking your trades are always right. However, when trading you can never be 100% certain and having this sort of ego will get you killed. When you start thinking you'll never be wrong you end up taking on more risk. When you take on that big risk and lose you start getting upset and fall for the other reasons why traders fail.
What you need to do is accept that losing is part of the game. Keeping losses smaller than your winners is key. Some of the best traders and hedge fund managers out there have success rates of about 25-50% meaning they lose more than half their trades but when they're right they win big and when they lose they lose small.
Not Enough Money
This one is really interesting reason for why traders lose and it's not really talked about. Similar to mentioned points earlier about not having a job you shouldn't be trading without one, trading is to increase existing income. However, people think they can jump into Forex and create an income. One of the biggest problems is that creators on social media create false expectations of trading basically selling the dream which doesn't exist. In reality to trade properly you need a decent start up capital. If you're trading with the bare minimum you're forced to over leverage which causes traders to lose quickly. Remember the goal to being financially stable is first having a job with income and from there you can work on growing yourself.
Technical Analysis Only
Our final and probably one of the most important reason why existing traders fail is because of their overrated attention to technical analysis. What traders think they need to do is understand the charts, price and indicators. In reality technical analysis is only useful for a couple things like identifying a specific trend or timing your trades. It's terrible for trying to forecast the future direction of prices.
This is the sole reason you need to understand fundamentals to get the best probable outcome of future price depending on economic data. If you're not using both types of analysis there's a high chance you'll end up like the rest of the losing traders. Save yourself time and money by learning these reasons and improving your trading habits.
In the second part of our guide to the best educational books about currency trading, we cast an eye over the sequel to Jack D. Schwager’s best-selling compendium of trader interviews, Market Wizards, find out all about technical analysis, learn how to interpret and react to economic indicators, and pick up a few strategy tips along the way.The Currency Trader’s HandbookRob Booker (Lulu)Available in paperback from Amazon.com Rob Booker is one of the most respected voices in the field of forex education, having published several popular books on the subject including the fiction-based ‘Adventures of a Currency Trader’ (as featured in part 1) and the highly influential Strategy:10. This book is more a nuts-and-bolts forex primer for those are fairly new to it, with a strong emphasis on developing strategies to make your trading more profitable in the long term. He also spends a fair amount of the book explaining the importance of psychology and thinking objectively, offering practical hints as to how to get into the right head space for trading.The Secrets of Economic IndicatorsBernard Baumohl (Pearson Prentice Hall)Available in hardcover, paperback, and e-book from Amazon.com This fascinating book from former TIME Magazine senior economics reporter Bernard Baumohl demystifies the whole process of interpreting economic indicators. While understanding what these really mean won’t give you the power of clairvoyance, it will make you much better at predicting trends and spotting turning points so that you can profit from them. As well as being essential reading for anyone with an interest in currency trading, this book may also be of interest to anyone who wants to know more about how economies really function and the factors that affect them.The New Market WizardsJack D. Schlager (HarperBusiness)Available in hardback, paperback, and e-book formats from Amazon.comJack D. Schwager’s first book in this series was a smash hit with traders at all levels of experience, providing a rare glimpse into the methodologies and techniques used by some of the most successful traders in the US. This book, which came out four years later in 1992, continues with the proven format of trader interviews on a given topic followed by a quick run-down of the main takeaways from each conversation. Shwager certainly seems to know how to get his subjects to open up and share their insights, asking thoughtful questions in order to solicit more detailed responses. Topics covered here include the way the market responds to news stories, mathematical probabilities, and why a good poker player would have many of the right attributes to be a successful trader. If you’ve ever wanted to pick the brains of a top trader, this book could be the next best thing.The New Science of Technical AnalysisThomas R. DeMark (Wiley Finance)Available in paperback and e-book formats from Amazon.comWhile many traders would contest the assertion that technical analysis can truly be thought of as a science, if anyone can find sense in the apparent randomness of price movements, it’s renowned high-finance consultant and author Thomas R. DeMark. In this book, he gives the clearest and most convincing explanation of technical analysis yet committed to the page, showing you how to reach objective conclusions from the largely subjective process of chart analysis and develop systems based around it that actually work.
Swing Trading is a shorter term trading strategy that is popular among FX and CFD traders. Swing Trading positions are typically held for a matter hours though traders may hold the position for longer under the right circumstances. The aim of Swing Trading is to firstly identify and confirm a trend, then to enter a trade and capture as much of the upward or downward movement of that trend as possible. For example if the price of Gold started to trend higher from $1329.00 per ounce and you enter a long (or buy) trade at $1330.00, in a size of one micro lot. Subsequently over the next 30 minutes, the price of Gold rises to $1340.00. At which point you close your trade. You will have captured 1000 ticks ( or minimum price increments) each of which is worth US$1.00 creating a profit of $1000.00 on the trade. Swing Trading often utilises Technical Analysis to confirm entry and exit points for a trade. Swing Traders will often want to see key price points or support and resistance levels broken, before entering a trade. They will use other indicators to monitor the health of trend and to alert them to any change therein. Trends and Ranges Swing Trading is often seen as a trend following strategy. Such that If the price of a financial instrument is in an upward or rising trend, then Swing Traders are likely to open a long position in that instrument. In expectation that the uptrend or move higher will continue, allowing them to make a profit. However if the prevailing trend in that instrument is downward ie the price is falling. Swing Traders will likely open a short position or sell order, in the belief the price of the instrument will continue to fall. And that they will subsequently be able to close their short position at a profit. More experienced Swing Traders may also look to trade the ranges in an instrument that is not in clear up or down trend. But whose price is moving in a band between support and resistance levels. However it is the break out of such a range that will elicit the most interest from Swing Traders. As this breakout may confirm the start of a new trend or trading opportunity. The graphic above shows the price action of a security as it trades in just such a range between clear lines of support and resistance. However the price of the security ultimately breaks below the line of support, initiating a new downtrend. Identifying Trends in Swing Trading The prices of financial instruments rarely move in straight line. Rather they oscillate reflecting changes in supply and demand and investor sentiment as they do so. These variations in price come together to form the characteristic chart patterns so beloved of technical analysts. Technical analysis can be complicated. However we can use a simple rule of thumb to help determine if the price of an instrument is in a trend and if so what that trend is. Uptrends An uptrend can be described as a series of consecutive higher highs and higher lows. In other words it can be clearly seen that the price of the security is moving higher during the observation period of our chart, be that on a 5 minute or daily time frame. Downtrend Conversely, a down trend can be thought of a series or progression of lower lows and lower highs. In this instance the price of the security is moving downward during our period of observation or time frame. Monitoring Trends in Swing Trading Modern charting packages, such as the one contained in our platform Blackwell Trader MT4, record information about a security’s price action during a given period. Tracking the Opening price, the High and Low prices during the period and the Closing price at the end of the period. This data can then be represented in the securities chart. Most commonly in a Bar or Candlestick chart format. These charts can provide both a visual a data driven view of a securities price performance. See below A Spot Gold 15 minute candlestick chart with a data window via MT4 Swing Traders who are looking for an upside or bullish breakout will want to see upside momentum. For example an initial break higher that is followed by a pullback or countertrend move. Which itself is superseded by a further move higher. Particularly if we post a new higher high in this third leg. Such a move may constitute confirmation of the trend as far as the bullish Swing Trader is concerned. If so they will open a long position or buy, accordingly. An example of this type of price action can be found in the graphic below. The art of successful Swing Trading is identifying and confirming the start of a new trend or the continuation of an existing one. This is achieved by scrutinising the price action of security or instrument and only trading when there is a very high degree of probability that a genuine trend is in place. False signals Swing Traders will ideally not wish to participate in a false breakout. But will be alert to the possibility and will often use a stop loss order to protect themselves against such an eventuality. Having entered a trade on the long side after the type of confirmation noted above. The Swing Trader may well have placed a stop loss just below the counter trend low, as a pull back or correction to such a level (a lower low) would infer that this was indeed a false breakout. Swinging in the other direction However as we have noted above a series of lower lows and lower highs also constitutes a downtrend. So whilst we may have seen a false breakout on the upside. The new lower low could also herald the start of a new downside trend. Confirmation of this trend could come in the form of the instruments failure to trade above the new lower high, associated with the counter trend low. Followed by a further new, lower low. We can see an example of just such a countertrend and downside breakout in the image below. These are the kind of inflection points that Swing Traders are looking for. Note though that they will often want additional confirmation of a trend reversal, so as to avoid being “topped and tailed” that is stopped out at both ends of the trade. Practice makes perfect Successful Swing Trading relies on recognizing and reacting to both genuine and false breakouts. In order to be on the right side of the trend and to minimize any losses, if you are wrong footed, so to speak. A very practical way to familairise yourself with market movements and to refine your Swing Trading strategy is to use one of our free Demo Trading accounts. Which accurately simulates real market conditions, without you having to risk any of your own capital. Once you’re satisfied that you have sufficient knowledge and a robust trading strategy you can move over to the real trading environment with our Live account. Tips on Swing Trading for those new to Swing Trading - Be patient remember you are looking to capture the majority of a move not just a few pips - Await confirmation before jumping in. Always let the market tell you that it’s changing direction or breaking a key level (support or resistance). - Think carefully about the placement of your stop loss relative to recent price action. As you won’t want to be prematurely stopped out but neither do you want to take undue risk. - You can raise or lower your stop loss behind a trade as it moves in your favour. - Always keep a record of why you entered a trade, what your confirmation signal was, where you placed any stoploss and takeprofit levels etc. You can look back on this record and review what went right or wrong. - Try to trade only when you believe the odds of success are very much in your favour. - Most important of all practise as much as you can on and formulate your strategy before committing to real trading. Some pointers for more experienced Swing Traders - If not doing so already consider adding indicators such as Relative Strength (RSI) and or Bollinger Bands to your charts. Both of which can shed light on trend strength and likely longevity as well possible failure or breakout points. - Alternatively the more sophisticated Stochastic Oscillators can be used to track market momentum independently of price or volume. These indicators can be customised by Blackwell Trader MT4 users to suit their own strategy or style. If you think Swing trading is for you then why not give it try by applying for an account. To set up a live trading account with Blackwell Global just click on this link live trading account and follow the application process.
This is a clever way of starting in the Forex trading business. You will be able to learn about all the things properly without worrying about losing the money. The trading system in the demo accounts will not happen with real money. Just like it sounds, you will be provided with fake money. The amount of investment can be as much as you want. From there, you will be able to keep on trading and learning the process. But a good sign of it is that the traders will be provided with real-time signals and price charts of different currency pairs. Therefore, the real-time practice will be done properly from the demo account. So, you can spend some money into the demo account and make some proper progress to an advanced level of trading. But traders will have to think properly and they will have to collect a demo account from the proper brokers of Forex. Then that will be the beginning of a good journey in the profession of trading business. There are chances for playing with the capitalIf you want to be a trader, there will have to be good control in your trades. To make good money, the control over trading capital is a must. The traders will have to act like the most efficient guy or girls in this industry. It can also help the traders to lose less money from the markets. As you will not be able to make the right trades in the beginning, there will not a good income right from the start of your trading career. The position sizing system will have to be proper from the trader’s side. It does not get the right kind of attention because of the lack of purity of a traders mind. Often thoughts like making more profit margins from the trades come to play with the minds of the traders. But it must not be influenced by the traders. You will have to learn about controlling the business capital from the demo account for that. Finding the perfect systemDeveloping your trading system is a very challenging task. The pro-UK traders in the options trading industry have spent a huge amount of time to learn the art of trading. Unlike the rookie traders, they place any trade without doing the perfect market analysis. At times you might feel confused about the structure of the Forex market but always remember, losing trades are inevitable. You have to rely on the simple but effective trading system so that you can easily place a trade with managed risk. You will be able to experiment the trading plansEvery trades from your account will have to be accurate with plans. Because there cannot be proper signals happening for you that easily. You will have to learn about finding them in the volatile markets. Even when you will find a proper one to trade for, the trend may change suddenly in between the running time period of the trades. It will not help the traders to win money from the business system. Instead, you will end up losing a lot of capital from your account. For this reason, all of the traders will have to do the right thing with their trades and the proper planning with protections. The position sizing will do both of the work for your trades. You can get help with the market analysis and the stop-losses or take-profits. The timeframes for trades must come out goodFrom the demo trading process, the traders will also have to learn about proper control of timeframes. You will have to learn about managing the business with long term trading process. It can make you a good trader with a proper income. The market analysis and the pips from the signals can be very easy to manage in the process.